Expert advice on how to get a 100% mortgage with no deposit

The 100% mortgage is BACK!

It’s no surprise then that some lenders are now looking at new and unusual ways to address these issues. One of the more unusual is the “Springboard” mortgage from Barclays, which offers fixed rates under 3% at the time of writing, which is more in line with an 80% loan to value (LTV). This compares to their Help to Buy rates of nearly 4%.

Of course you still have to prove the mortgage repayments are affordable. To access these Low rates the First Time buyer need only provide a deposit of 5%, and can even offer NO deposit. Yes, zero deposit, nada, nothing at all.

This is where the “Bank of Mum & Dad” comes into play (or other acceptable third parties). They are required to place funds equivalent to 20% of the property price into a 3 year no-access savings account with Barclays. After three years the funds are released with added interest at a rate of 1.5% above the Bank of England Base rate.

At that point the buyer can then re-mortgage as the combination of paying off some of the debt over the three years, and the expected rise in their property value, will mean they only need a 90% mortgage or even lower – yet more importantly no more help from mum and dad.

In the past 100% mortgages had a bad press as buyers were locked into deals they couldn’t afford, partly because of the high rates being charged by the lenders for the additional risk of lending 100% LTV.

Given today's low interest rates on savings the aforementioned idea is not a bad deal for Mum & Dad, as long as the mortgage is paid on time and is up to date. It’s a good idea, but it has one major flaw. With a typical house costing £170,000 it does mean the parents have to have about £34,000 available to lock away, so it won’t be ideal for everyone.

Fortunately some lenders are offering an alternative that works in a similar fashion, but instead of requiring hard cash they will use the equity in Mum & Dad’s house. They do this by taking a legal charge on the property, that is released at a later date. This will result in additional cost as there will be extra legal work, and the parents property may need to be valued.

Typically the charge on the parents' property will be for a sum equivalent to 25% to 35% of the mortgage being raised by the First Time buyers. This ensures that should the FTB fall behind on their mortgage all costs can be recovered.

In order to attach a 35% charge the parent's property they should have at least 40% equity over their own mortgage (if they have one).  The advantage of such strong security is that rates for the first time buyer can be set low, close to 3% for a 100% mortgage. Product fees are low too, or non-existent and there is at least one scheme where there are NO early repayment charges to pay at any time. This will allow the FTB to re-mortgage as soon as they have equity in their property.

Overall schemes like this have a place in the market, and a 100% mortgage will help a lot of people onto the property ladder. But I urge caution. Make sure you are dealing with an experienced adviser who fully understands the scheme chosen. This should NOT cost you any extra in adviser fees if they are a reasonable adviser. Ask to see their standard terms. You should also involve Mum & Dad in all discussions and they will be encouraged to seek legal advice.

Darren Amos

Financial Planning Designer

If you would like to contact Darren for help with trying to get a mortgage then you can contact him.

The material in any email, the Money to the Masses website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy